Transport Insurance Co. v. Faircloth
898 S.W.2d 269, 1995 WL 141437 (1995)
Rule of Law:
An insurer does not owe a third-party claimant common-law duties of good faith and fair dealing or fiduciary duties, and statements of opinion regarding the value of an unliquidated claim do not constitute actionable fraud unless based on false facts or made by one exploiting superior knowledge where the claimant justifiably relies without independent representation.
Facts:
- On May 18, 1984, Marvin and Judith Kervin were killed when an Allied Van Lines tractor-trailer crossed the center line and struck their pickup truck.
- Allied’s insurer, Transport Insurance Company, facing likely liability, sought to settle potential claims quickly and cheaply.
- Janet Jones, an adjustor for Lindsey & Newsom Claim Services acting on Transport’s instructions, investigated and believed 16-year-old Paula Trippel (Faircloth) was Judith Kervin's daughter and step-daughter of Marvin Kervin.
- Reverend Troy Caldwell, a family friend, initiated steps to be appointed Faircloth’s guardian and hired attorney Mike Askins.
- On May 22, 1984, Askins opened the guardianship for Faircloth, and Caldwell was named as her guardian.
- Within one month of the collision, Caldwell and Askins settled Faircloth’s claim against Transport’s insured for $250,000, with the probate court approving the settlement and awarding one-third to Askins and two-thirds to Caldwell.
- Upon reaching majority, Faircloth sued Transport, Lindsey & Newsom, Jones, and Caldwell, alleging that they had defrauded her of the true value of her claim.
- During discovery, Transport learned that Faircloth was not the biological or adopted child of Judith Kervin, and Faircloth admitted that she had known this since she was young.
Procedural Posture:
- Paula Trippel Faircloth sued Transport Insurance Company, Lindsey & Newsom Claim Services, and Janet Jones (collectively, Transport) in a trial court for alleged misconduct in procuring the settlement of her claim.
- After a jury trial, the trial court rendered judgment for Faircloth based upon violations of Article 21.21 of the Insurance Code and the Deceptive Trade Practices-Consumer Protection Act (DTPA).
- The trial court's judgment awarded Faircloth damages and attorneys' fees, calculating damages under multiple theories but basing the judgment solely on Insurance Code and DTPA violations.
- The court of appeals reformed the calculation of prejudgment interest and affirmed the trial court's judgment, finding sufficient evidence of deceptive acts, civil conspiracy, fraud, and breach of a duty to deal in good faith.
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Issue:
Does an insurer owe a third-party claimant common-law duties of good faith and fair dealing or fiduciary duty, or can an insurer be liable for fraud or civil conspiracy, when negotiating a settlement with a minor through her guardian, particularly when the claimant is not a "consumer" under the DTPA and the alleged misrepresentations are opinions of value?
Opinions:
Majority - Gonzalez, Justice
No, an insurer generally does not owe a third-party claimant such duties, nor was fraud or civil conspiracy proven under these circumstances. The court found no actionable violation of the Texas Insurance Code or the DTPA because Faircloth was not a "consumer" as defined by the DTPA. A third party negotiating a settlement with an insurer, who seeks only policy proceeds, does not "seek or acquire by purchase or lease, any goods or services" from the insurer, which is a prerequisite for consumer status and standing under DTPA §§ 17.46(b)(23) and 17.50(a)(3), and thus for claims under Insurance Code Article 21.21. Regarding common-law fraud, statements that the $250,000 settlement offer was "top dollar" were mere expressions of opinion about monetary value of an unliquidated claim, not actionable representations of fact. The value of a wrongful death claim is inherently a matter of opinion and not susceptible to precise calculation. There was no evidence Transport knew the opinion was false, buttressed it with false facts, or that Faircloth justifiably relied on Transport's superior knowledge, given her representation by a guardian and attorney, and probate court approval. The court found no evidence of civil conspiracy, as circumstantial evidence of collusion between Transport and Caldwell or Askins amounted to mere suspicion, not a "meeting of the minds" for an unlawful purpose. Finally, Transport owed no common-law duty of good faith and fair dealing or fiduciary duty to Faircloth, a third-party claimant. Such duties arise from the special relationship between an insurer and its insured, but not with adverse third-party claimants who lack contractual privity and whose interests conflict with the insured. Public policy favors the finality of settlements, especially for minors once they reach majority, and setting aside such agreements on subjective claims years later would jeopardize this policy.
Dissenting - Spector, Justice
Yes, I believe there was sufficient evidence that Transport Insurance Company defrauded Paula Faircloth during the settlement of her claim. The record contains more than a scintilla of evidence to support common-law fraud. Therefore, I would modify the court of appeals' judgment to allow Faircloth to recover on that basis.
Concurring - Enoch, Justice
I agree with the Court's opinion and write to add an additional reason for reversal. As a third-party claimant, Faircloth has no statutory cause of action based on unfair claim settlement practices. For a common law fraud claim, an adverse party in negotiation, like Transport, has no duty to disclose the maximum amount it would pay to settle a claim. General statements regarding the value of a claim, without more, are considered non-actionable puffery. Faircloth introduced no evidence of a material false representation by Transport that would support a fraud claim.
Concurring in part and dissenting in part - Hightower, Justice
I agree with Part I of the Court's opinion regarding statutory claims but dissent from Part II.B concerning fraud. I believe there was enough evidence of fraud to submit this case to a jury, and the majority improperly applied the "no evidence" standard of review. While opinions of value are generally not actionable, an exception exists when the speaker purports special knowledge, or when one relies on supposed superior knowledge and is discouraged from consulting a lawyer, as established in Safety Cas. Co. v. McGee. Evidence showed Transport's own attorneys valued the claim at twice the offered amount, that Transport recognized potential for gross negligence/punitive damages (which Faircloth's attorney hadn't identified), and that Transport encouraged Faircloth to retain an attorney they considered less than a "top gun" while internally aiming to "rush the settlement" at "low" figures. This, combined with the extreme disparity in knowledge between a sophisticated insurer and a 15-year-old minor, provided a sufficient basis for a jury to find actionable fraud. The majority's reasoning fails to properly consider circumstantial evidence and inferences favorable to the jury's verdict, as required by the "no evidence" standard.
Analysis:
This case significantly clarifies the limited legal duties an insurer owes to third-party claimants in Texas, distinguishing them sharply from the heightened duties owed to their own insureds. It reinforces that settlement negotiations with unrepresented third parties, even minors, are generally considered arm's-length transactions, where parties are expected to seek independent counsel. The decision also narrows the scope of actionable fraud claims stemming from expressions of opinion about unliquidated claim values, requiring strong evidence of knowing falsehood, buttressing with false facts, or a clear exploitation of superior knowledge coupled with justifiable reliance and discouragement of independent advice. The case serves as a critical precedent limiting the extracontractual liability of insurers to third parties, emphasizing policy concerns around the finality of settlements.
